What's Good for the U.S. Is Good for the World

One of the issues I've written about repeatedly over the past several years is the importance of housing as a leading indicator of economic potential, which I often reference: "As goes housing, so goes the U.S. economy."

That phrase, however, is about more than just housing. It's the first guideline of what I refer to as the "ABCs of Global Macroeconomics." I haven't discussed that concept in its entirety here for many years, but given the hand wringing concerning the impact of a Trump administration agenda I wrote about in the column, "'Pax Americana' Is in for a Much-Needed Makeover," I think it's a critical concept to be aware of.

I will discuss these very briefly in sequential order, but the B and C are the most important to understand with respect to the potential impact of Trump's "America First" agenda on the world.

As Goes Housing, So Goes the U.S. Economy

Employment and economic activity directly related to housing along with its first derivative make up the largest segment of the U.S. economy when measured by GDP. This is a point missed by many pundits downplaying the impact of housing on the economy. Housing as a direct measurement accounts for only 2%-3% of annual GDP versus health care, which accounts for about 18%.

However, that 2%-3% only measures the economic impact of two areas: 1) the creation of new homes and 2) those associated with the transfer of all homes. This includes land developers and builders in the first category and real estate brokerage, mortgage lending and title insurance in the second.

Once all the jobs directly related to the service and maintenance of housing are taken into account, housing's employment and economic impact exceed health care and is in the range of 22% of GDP.

As pertains to the Trump agenda, the folks who would usually have found work in the housing sector but have not been able to because of the lack of demand for such will be provided a similar opportunity if an infrastructure program can be implemented, even if it requires some degree of privatization, as I discussed in the column, "Virginia Project Shows What's Possible With Privatized Infrastructure."

As Goes the U.S. Economy, So Goes the World Economy

The U.S. represents about 5% of the global population but accounts for the consumption of 25%-33% of all goods and services produced in the world and about 25% of production of those goods and services. As a result, the U.S. is the marginal consumer of just about everything, which means it is the engine of the global economy.

That also means that when the U.S. is in recession, or a period of sustained low growth, the rest of the world experiences a reduction in exports to the U.S. and as a result experiences a negative economic impact that is greater than that in the U.S.

This is commonly referred to as "when the U.S. sneezes, the world catches a cold."

What's Good for the U.S. Is Good for the World

This is the most contentious of the three points; however, it is only logical. The rest of the world's economies, countries and companies continue to rely on the consumption of their goods and services by the U.S. So they need a strong U.S. in order to continue to grow. And on the current trajectory for globalization and world growth, this will remain true for at least the next few human generations.

Global GDP is about $75 trillion. U.S. GDP is about 24% of that, $18 trillion. The European Union is about 21% at $16 trillion, China is 15% at $11 trillion, and Japan is about 5% at $4 trillion.

There is no substantive corollary in history to the impact the West, and especially the U.S., has had on human civilization socially, politically and economically. That is still the case today. This is something most easily forgotten by U.S. citizens and investors. It is easy to take for granted that which you are accustomed to.

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